Kat Utecht, partner at Core VC, shares her adventurous journey of starting a VC firm on the east coast and expanding to the west coast. She describes how her startup investments improve the lives of average Americans.
Kat Utecht, partner at Core VC, shares her adventurous journey of starting a VC firm on the east coast and expanding to the west coast. She describes how her startup investments improve the lives of average Americans.
Highlights:
More details at https://podcast.sure.ventures
You know, I think the other thing that like Arjan and I learned is, in addition to just doing direct to consumer and helping with affordability and accessibility, uh, we really care about modernizing financial services and insurance infrastructure. We think one of the reasons it's so expensive to be poor is because the fees are so high and the fees are so high because of a lot of legacy infrastructure.
So we do a lot of things that aren't direct to consumer and are pure B2B or B2B2C. And some examples are like ones that you mentioned in the beginning.
[00:00:38] Gopi Rangan: You are listening to The Sure Shot Entrepreneur - a podcast for founders with ambitious ideas. Venture capital investors and other early believers tell you relatable, insightful, and authentic stories to help you realize your vision.
Welcome to The Sure Shot Entrepreneur. I'm your host, Gopi Rangan. Our guest today is Kat Utecht. She's a managing partner at Core Innovation Capital, an early stage venture capital fund making mercenary returns through missionary investments in financial services and insurance technology.
Some of the portfolio companies include Ripple, Synapse, HealthSherpa, and Bestow. Prior to investing with Core, Kat was at Comcast Ventures and was the CEO of Green Rock Entertainment, an E-commerce company acquired by private equity in 2009. Kat began her career in financial services both as a middle market investment banker for Raymond James and was a graduate of General Electric Capital’s Financial Management Program.
We will discuss how, as a mission driven venture capital investor, Kat and her partner, Arjan Schütte, look for investments to improve the lives of everyday Americans. We will learn about the firm's origins in the city of New York and how they expanded to the West Coast in the Silicon Valley and in Los Angeles.
You will learn what to expect when you approach as an entrepreneur and how they collaborate, how they make decisions. Kat, welcome to The Sure Shot Entrepreneur.
[00:02:17] Kat Utecht: Thanks, Gopi. Thanks for having me.
[00:02:19] Gopi Rangan: What attracted you to venture capital?
[00:02:22] Kat Utecht: I think, like a decent amount of people, I felt backward into it.
Um, you either talk to some people that have very, uh, storied, pedigreed paths and, and always saw venture as a career. I don't even think I knew, uh, what venture capital was until my twenties. And, uh, I happened to run this company. Originally I made an angel of investment. Uh, they credited me for being cofounder, uh, because from day one, I was pretty much running the company.
Even though my initial intention was just to give money and provide high level advice. And let me tell you, don't do that. That's not scalable to run all the companies that you invest in, and I won't do that again. One of the first lessons that I've learned. So I ran the company, uh, sold it to a private equity fund, and really everyone looked at my background, and they're like, "you have financial services, you have great startup experience.
Why? Aren't you a venture capitalist?" And I looked and I said, "Oh, that, that could be an interesting job." And started talking to a lot of other people in the ecosystem, met a lot of great VCs and, you know, met Arjan and we really had the exact same investment philosophy, which was do well and do good at the same time.
Uh, so that's why I joined them, uh, back in 2011.
[00:03:37] Gopi Rangan: But when you started the Core Innovation Capital with Arjan you had a mission in mind and the mission was to serve the everyday American. Can you tell us about the investment philosophy and how is it different from other VC partners?
[00:03:50] Kat Utecht: Yeah, definitely. And so fun fact, when Arjan and I started in 2011, when I met him, Core was actually based in New York City at 611 Broadway way back in the day, uh, before we moved out West. And now we have a big presence of both the West coast and the East coast. But back then we were New Yorkers through and through. And you know, the initial thesis of the fund was actually FinTech for the underbanked.
And then, uh, we've evolved now really for, for everyday Americans. So, you know, we pretty much care about the majority. I don't really care about the top 1 percent or 5%. Uh, their money can work for them. They have a lot of other people that are working for them. Uh, so that's not our focus. Our focus, as you had said in the beginning, is mercenary returns through missionary investments in financial services and insurance technology.
So our full philosophy is that the more value you bring to an end customer, the more they'll keep using your product and service. So we equate this high customer value to a high enterprise value of companies. And I think back in the day, especially in 2011, it was, uh, highly contrarian that you can both make money and have an impact at the same time. More recently, you know, people have been caring about what they're investing in and making sure that they're making meaningful investments. I think for Arjan and I personally, we just cared and if we were going to pour our heart and soul into into something and into building, uh, not just a fund, but what we wanted to do is build a whole firm and a brand and a legacy that outlasts us.
Uh, the impact of what we were doing really mattered. And we just saw that there was a white space and there was a lot of Silicon Valley that was scared of, you know, a subprime or non prime consumer. It was a customer that they didn't understand because they didn't really grow up that way. And then FinTech in Fintech in generall is highly regulated.
But especially when you talk about serving low and moderate, income consumers, uh, there can be a lot of controversy there. And so that was a lot that investors weren't touching. But we saw this huge opportunity that these customers were being underserved. Uh, people were focusing a lot on solutions for the top 10%.
And we still saw all this opportunity for there to be really, really great tech solutions and to bring financial services really to the masses and not just the masses, but the un and under banked.
[00:06:19] Gopi Rangan: Your mission is an inspiration to me as well. So when I started Sure Ventures, I wanted to have a similar type of mission and my mission is to enable peace of mind for all individuals and businesses. I felt that the Silicon Valley in general, the type of investments and venture capital investors don't focus on this.
[00:06:38] Kat Utecht: I think as we evolved, we've seen so much opportunity both in infrastructure plays and also direct to consumer plays.
And, you know, our philosophy has gotten more popular in Silicon Valley. So, uh, in a lot of our companies, you'll see a lot of name brand VCs that are co investing with us, or that co invested after us. And then you'll still see us do some somewhat more esoteric stuff that still scares people. But I think over the last several years, people have gotten more comfortable as to where we're investing.
[00:07:10] Gopi Rangan: So when entrepreneurs come to you, what do you look for? Like, can you maybe use an example of an investment and show how your journey of understanding the team, understanding the product, what really impresses you and how you make these decisions?
[00:07:26] Kat Utecht: Uh, for us, like most VCs, you know, it's team, it's a large market, it's the product.
They're all mission driven like us. It could be that's why they also selected us. But they're normally very passionate about what they're doing, because they're solving a real issue that's important to them. And either they lived it, or they saw someone close that lived it, and they just said, "you know what, I need to fix this.
Like, this is a huge market opportunity, a huge problem I want to fix." Even though I think, some people are building things to make a lot of money and that's great, I think they really care about the mission behind what they're building. And so, you know, within the teams, you have a variety of experiences.
You normally have that like big mission. Being an entrepreneur is one of the hardest things you can do. So having a mission that really inspires you and drives you when it can be a rollercoaster ride and when there are really low lows, I think it's super important that you're bought into what you're doing and what you're building.
So we really we have these wonderful mission-driven CEOs that have built great teams. And so when we're looking at teams, we look at: can they recruit? Can they fundraise? Do we think they can scale? I mean, you look at intellectual horsepower. Most of the people, fortunately that, that cross through a room, they're really, really smart.
And then you say like, do they have the grit? Do they have persistence? You know, where have they failed before? What have they learned from it? Where have they been successful? What have they taken from it? So we, we spend a lot of time with the teams and getting to know that. You know, our world, as you know, is pretty small.
So a lot of people are easy to reference. So lots of it on the teams, lots on the market. Uh, even though we're focused on FinTech and insurance, as you know, there's several themes within those. So things like neobanks and infrastructure, and lenders, and saving, and mortgage, and even elder care, Medicare. So there's, there's lots of areas and categories that we've gone deep in within FinTech. We know most of the markets well, and then we'll get to know a market niche really well. And again, we want to go deep and understand why is this company different? What's going to be their competitive differentiation? Um, where's their advantage? Um, how are they going to be able to sustain that? You know, do the unit economics make sense? How are they going to hire customers? And we look and we make sure that when you look at the market, it's going to be big enough for what they're going to do and that they're going to win there. So normally looking for market that's over a billion dollars and that we think that the company can command. And then if there's a product and service bill, we like to look at that. That's normally a reflection on the team and also how they can be competitively differentiated.
So we play a lot with a lot of products. Uh, fun fact, Arjan has taken out, I think, more loans probably than anyone else, and has purposely defaulted on them just to see people's collection practices. Uh, so, we, we love to play with and test.
[00:10:34] Gopi Rangan: You guys are edgy.
[00:10:34] Kat Utecht: Yeah, yeah, luckily, he normally only do that when he knows they're not reporting to the credit bureaus, yeah.
But, um, we like to test kind of every sense of the product and make sure it's something that we love, that we want to use, that we believe in.
[00:10:48] Gopi Rangan: I see many threads here. I see that the team is very important for you. That's probably the most important question that you ask. And there's a variety of different types of teams that you invest in.
And the second is the domain; focus on financial services or insurance and there are many teams within that. And the third is the standard set of metrics that you look for - unit economics, market size, and all of those things. And you're not shy to default and try to test the product yourself and see what happens with the collection agencies.
That is quite adventurous, I would say.
[00:11:20] Kat Utecht: Oh, yeah. Are you not defaulting on loans when you invest?
[00:11:25] Gopi Rangan: I have not. I bought crypto many years ago when I looked at that space. When peer to peer lending came up, I opened an account just to see how that works, but I have not really ventured into that adventurous space of defaulting and risking my credit history.
Something that I might have to do. I learn a lot of things from you.
[00:11:47] Kat Utecht: Yeah, real dedication, real dedication. No, but, but just make sure normally when they're that early, they don't start reporting to the credit bureaus yet. So you're okay.
[00:11:55] Gopi Rangan: I will take that lesson. This is very interesting. So can you give an example of one startup?
I know we've looked at many startups together. We are co investors in Decent. You focus on healthcare in general. Can you pick one example and kind of walk us through how did you get to know the entrepreneur? How many meetings did it take for you to totally warm up to the idea? Let's double click on the themes that you mentioned.
[00:12:18] Kat Utecht: Yeah, definitely. So let's take, uh, obviously I love a lot of our portfolios, but I'll take one of our favorites, which is HealthSherpa, uh, which we invested in 2016. Uh, we had met George Kalogeropoulos and the three co-founders back in 2015. Uh, we were actually referencing somebody else, talked to George, really loved him, wanted to understand what they were doing.
So HealthSherpa shepherds people into the right exchange plans. So they enrolled over 3 million people into, uh, exchange plans. They're also doing, um, some cool stuff with Medicare and some other areas of healthcare. But pretty much you can think of them as the private healthcare.gov. And actually after healthcare.gov, they enroll the most people in the exchange plans. So, um, really loved their mission, really loved what they were doing for people. So a lot of their customers are low and moderate income on average. They're getting people into silver plans, which are pretty good health care plans, for $47 a month in premium, uh, which is a great price.
So they're mapping out the subsidies state by state and really helping put people into the appropriate health insurance plan for them, uh, at a great price. So really loved what they were doing. Um, loved a lot about their values in culture as a team. I loved a lot of their practices. George had come from Bridgewater and would write these and still writes these amazing manifestos.
Uh, so just truly appreciate like what he was doing and where he was coming from. And so we just got to know them after that reference call, even though they weren't technically raising money at the time. And we just kept up the conversation for months and months. And then finally, it seemed like it might be a good time for them to raise a series A.
And so we led that series back in. Uh, 2016 and, and that at a time when everyone said we were crazy because Trump had just been elected and people were like, how are you investing in a company that's just doing Obamacare and you're going to have Trump and like, like, there's going to be no more exchanges.
Like, what are you going to do? And, you know, the reason we invested is one, you know, there's 20 million people without health insurance and a lot of those using or that are enrolling in the exchange plans. So I said, well, even with Trump being elected, even if Obamacare goes away, you know, they're not going to leave 20 million people uninsured.
There's going to have to be something to replace it. And this is a team that has built the best product that can evolve. They've evolved in the past. They show that they can evolve, that they're really great at understanding the customer and building a great product user experience. So I was like, this is great.
The more volatility in the health insurance market at the low end, the more that HealthSherpa is going to be able to capitalize on that. And so, yeah, so that was, it was very contrarian, especially in 2016, but so far it has been an absolutely awesome investment. They're growing a hand over fist.
And, uh, I know George has publicly announced some of the numbers, including that they they've enrolled over 3 million people. Obviously with COVID, they've been extremely busy enrolling people each month. And this is, you know, been the busiest time. It's as busy, if not busier, even than open enrollment period right now.
So they've really done some great things with the product and just super proud to be an investor.
Well, this is a great story. Your bet in 2016 is proving to be an amazing investment. You and Arjan have an unusual setup where you are located in two different places, and when you meet a startup like HealthSherpa, how does the process work for you?
Does one partner get very excited and try to convince the other partner or do you both meet the entrepreneurs at the earlier stages and kind of brainstorm on this? How do you collaborate?
Yeah, definitely. Um, so yeah, Arjan and I were set up for COVID well before COVID. Like I said, we originally met in New York and then, uh, Arjan for a lot of family reasons wanted to come out to LA and I was fighting California at the bit, uh, as you can hear from my voice.
[00:16:41] Gopi Rangan: So you were in New York, you were in New York and Arjan was in LA. And just to make things a little more complicated, you opened an office in San
Francisco.
[00:16:49] Kat Utecht: Yeah. Well, originally we were in New York, New York, and then, and then Arjan went to LA and then we knew, you know, we should have a San Francisco office.
A lot of our companies were there. And so what we did, I think that really helped is I spent. The first like 18 months sitting literally next to him, like we shared a desk and office and we sat next to each other for 18 months, uh, in L. A. And then we would travel to San Francisco together. And then we traveled to New York.
And so we knew we were on the same page about deals, about our thinking about deals, you know, and it's funny. A lot of deals. We played devil's advocate. One will like it and one will not. And yeah. And naturally it just goes that way. So we've had a lot of really good conversations. Um, but you know, we know the questions that each of us care about and, and, you know, hopefully had how to make a persuasive argument and we've kind of decided, you know, for a deal to get done, either he should convince me that I want to do it, or I should be able to convince him that he doesn't want to do it.
And that's worked out well for almost the past decade. So sitting together for that year and a half was important. Then we opened up San Francisco, and then our pattern was, I'm gonna be in LA, and then he comes to San Francisco every Tuesday, Wednesday. We do the deal meetings together, all as a team on Tuesdays.
And then we meet, in New York together for at least a week a month. So we had a really good setup and we do, and, um, we have, we have Slack, we have email and because our partnership is really easy, it's just two people voting, we talk to each other all the time. So it's actually worked well to make decisions.
As far as who the deals go to, I mean, there's certain things I'm super passionate about and certain things that he is. So pretty much anything that's at the intersection of healthcare, my team will normally, uh, bring me involved. Or if it goes to Arjan he will get me involved. If it has to do with like, uh, neobanks or regulatory infrastructure, I'll send to Arjan.
Normally if it's in New York, I'll take it. If it's in LA, he'll take it. So we've been able to split things pretty well. And then, you know, I mean, you know both of us well. Uh, we have completely different personalities. So, uh, if, uh. If someone's a bit more cerebral, sometimes we'll send them to Arjan, and it'll be a better fit.
Uh, and so the team sometimes will see entrepreneurs and go, "Well, that'll be a better fit for Kat, and that'll be a better fit for Arjan." And like, we've even actually switched up board positions, too uh just to switch it up. So we like to think we're the interchangeable; though, at the start, normally we do have certain preferences and the team knows who to go to.
Uh, one of us will take the lead and we'll have one of our vice presidents take B point with us. Uh, the other one will probably take a devil's advocate approach. And then we'll debate deals and then come to hopefully a great intellectually honest conclusion of whether we invest or not.
[00:19:41] Gopi Rangan: So from an entrepreneur's point of view, does an entrepreneur need to convince each of you individually or do they need to convince one of you and then you will do the job of convincing the other?
How does it work?
[00:19:52] Kat Utecht: Yeah, that's a great question. Um, I think, you know, as long as one of us is great, eventually you need both of us. So everyone's a pitch like you need to talk to me and Arjan. But normally what we'll do is if one of us really likes it, the other one will ask questions. So if I like a deal Arjan asks a lot of questions, I'll try to find all those answers and come back.
Um, and if the team seems like they like it, we'll have the person come in and pitch the whole team. And we have a great team in addition to me and Arjan. So, we have a bunch of just wonderful vice presidents, we've got a regulatory advisor, the CFO, uh, COO. And so they'll ask some more questions. Um, so we'll normally have someone come pitch at the deal meeting and then we'll eventually come to a conclusion.
I mean, depending on how early a company is we can make a decision within a half an hour. So we knew it was a hot deal and we had to decide like that day, Arjan and I will just get on the phone call with the entrepreneur together, and then, you know, we can pretty much mute the phone and make a decision if it's a small chat uh, and it's super early and then if it's a, you know, larger lead check for, you know, up to $7 million in a later seed or a series A, then, you know, from our first meeting to term sheet, we always want to be 20 days or less. So then you might go through more of a process. So it just pretty much depends on how much we're planning on investing and what, what stage it is really, and how much like we're going to go and go deep into diligence and how much time it will take.
[00:21:22] Gopi Rangan: So it looks like, uh, what I'm hearing is it's a flexible process.
There is no one way to do it. Sometimes you make a decision in 30 minutes. Sometimes it takes a few weeks or months of getting to know the team and the decision evolves. So there is no one set formula.
[00:21:38] Kat Utecht: Yeah, I mean, we like to have a range and we do have a whole framework for it. So I think the 30 minute thing we'll only do is if it's a small, what we call catalyst checks, it's probably a check of like, you know, $250,000 and it's, uh, it's come highly referenced to us.
And we've already shot off a couple of emails to some of our friends and we can track down who the CEO is and pretty much vouch for them. And it's a market that we probably know really well. And so we feel really good about where we're investing in that space. So those will be for really quick ones.
Anything where we're going to write a significant check, it's going to be a longer process. Um, and normally when it's a bit later stage, it's not pre product, pre market, there's a lot more for us to, to track down, to diligence, to try. And so we will. And then to your point, though, we did this one year.
We saw on average, we knew our CEO 17 months before we ever invested in them. And I think some of it is that, you know, we'll look at something very early, like a pre seed round, and it will just be too early for us in that particular niche, even though we do do early, uh, and then we'll track the CEO. We'll try to be helpful.
We'll stay on the investor updates, and I always believe entrepreneurship, but like, I, you know, uh, how investors can help on those updates and we'll try to be helpful if we're interested. Um, and then we might invest in a later seed or a series A. So we do end up knowing our CEOs for a while. So in these COVID times, it's actually been pretty helpful because we know a lot of people in the ecosystem.
So we've met them before, even if it was at a party, even if it was when they were running another business. There's a lot of the CEOs that we already know their faces and, you know, we respect and really like them, even if we haven't invested in them yet, which is making it a lot easier to now take in person meetings right now because we know most of the people on the ecosystem.
[00:23:30] Gopi Rangan: This is fascinating. We covered a lot of territory. We covered your career through commercial finance, through venture capital through Comcast, and then your first office at 611 Broadway in New York, and then how you built Core with a mission that also very heavily focuses on financial returns and not just impact. So that it's great to see that you've built the firm over the years and you've raised many funds after that and your focus on how you make decisions with the team. The focus on the domain and the standard metrics that you use. The example that you gave with the HealthSherpa gave a lot of insights on how you make these decisions collaboratively, especially with you and Arjan located in different locations. Clearly you are well prepared for lockdown and remote work much before the rest of the world. Thanks a lot for sharing the insights on insider stories on how you make decisions within Core. I hope to find opportunities for us to co invest in the future and collaborate more and more.
Yeah, definitely. We should. We need to find a lot more to do together.
This has been so fun. Anything I said that you have a different philosophy on? How you're looking at teams and markets and products?
I align very closely with your philosophies. That's why we collaborate very often. You get to see a lot of the opportunities that I see. The area where I struggle with is remote collaboration.
I struggle with investing in teams, startups with founders located in multiple locations. And I started to think how I would partner with someone else at my firm. If I were to bring on a second partner, especially at a different location. That's still quite adventurous to me. And I haven't risked defaulting.
to risk my credit history. So that might be something that I will have to learn. Also, let me switch to the next section here. I want to talk to you about the community activities. Any leadership roles that you take in nonprofit organizations. Which nonprofit organization are you passionate about and why?
[00:25:33] Kat Utecht: Yeah, uh, several, but I'll choose the one that's near and dear to my heart. So I am an advisor to skysthelimit.org. Sky's The Limit is helping entrepreneurs, uh, and 80 percent or minority entrepreneurs, build their businesses. And so these are our venture type businesses for the most part, they're really, um, Just great lifestyle businesses. Things like starting a food truck or starting your own clothing line. And so I think, you know, outside the VC world, very few companies raise venture. And honestly, venture doesn't make sense for most companies, but there's a lot of really, really great businesses that you can build and in where you can make a lot of money without needing venture capital.
And so Sky's The Limit helps most of these solo entrepreneurs end up being able to register their companies, uh, if they're going to raise funds. And sometimes it's like just from the bank or from family and friends, uh, teaching people how to do that, teaching people how to set up, you know, their income statement, their balance sheet, how to source supplies, how to hire a team how to pay people so just like every nitty gritty detail of what you need to start a small business, Sky's The Limit does that. So besides having great resource guides, they pair mentors with these mentees. And then the mentors are all sorts of great people from large corporations to other vcs.
So I do some office hours each month to other more large scale tech entrepreneurs trying to help these individual people, uh, become their own small businesses. And I think that's important now more than ever, you know. For us, we've been very fortunate that we've had a lot of resources, uh, to figure out how to start a company.
And then, and then we're very fortunate that we're able to invest in companies. Um, so I love it because it takes a lot of people that are in underrepresented groups. And there are also many that are low and moderate income. a decent amount that are in rural areas that might not have exposure to these types of businesses.
It really teaches them how to be independent and build their own business. And I think post COVID, some jobs are going to go away. I would love to see a lot of these entrepreneurs and small business owners, you know, spring up and start their own thing.
And so I think, Sky's The Limit just does an incredible job at preparing people to do their own business.
[00:28:05] Gopi Rangan: Well, this is great. Thanks a lot for sharing this. I'm delighted to see that you play an active role in community development.
[00:28:13] Kat Utecht: Yeah. Thank you, Gopi. I truly appreciate it.
[00:28:16] Gopi Rangan: Thank you for listening to The Sure Shot Entrepreneur.
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